We have learned elsewhere that the tax basis for gifts carries over to the recipient, in contrast acquisitions from a decedent get a new tax basis, if the property has appreciated, a step-up, otherwise a step-down (‘mark to market’) (see What is the bifurcated basis rule?).
The uniform basis rule becomes relevant once the bifurcated basis rule has already operated, i.e., resulting in an original (gift) or stepped-up basis (bequest). Where does this rule matter?
As Professor Couch explains, in most cases the basis of property held by an estate or a trust is of little concern to the beneficiaries until the entity distributes the property to a particular beneficiary, whereupon the distributee receives the property with the same basis it had in the entity’s hands.
Or formulated more generally:
When successive multiple interests are created in property, such as life estate and remainder interests, the tax basis is uniform with respect to each individual holding an interest in the property. The basis of
property acquired from a decedent must be “uniform in the hands of every person” that acquired or received the property from the decedent. Likewise, the basis of property acquired by a gift must be
uniform in the hands of every person who acquired an interest in the property from the gift (Reference).
Reg. 1.1014-4(a): “…the basis of the property … will be the same, or uniform, whether the property is possessed or enjoyed by the executor or administrator, the heir, the legatee or devisee, or the trustee or beneficiary of a trust created by a will or an inter vivos trust.“
Formulated differently, “the uniform basis rules reflect the concept that property acquired by gift or from a decedent has a single or uniform basis, whether multiple persons receive an interest in the property and whether directly or through a trust, and the individual interests have a basis that it is a proportional part of the uniform basis.”
Example: “Claudia dies leaving her entire estate to Duncan by will. Claudia’s property, including Blacckacre (worth $200) and Whiteacre (worth $100), has a basis equal to its value at the date of her death. In the course of administering her estate, the executor sells Whiteacre, purchases Greenacre for $150, and, eventually, distributes Blackacre and Greenacre (along with the other property remaining after paying debts, taxes and administration expenses) tax-free to Dunkin as sole beneficiary under the will. The basis of the distributive property in Duncan’s hands is the same as in the estate’s hands, $200 for Blackacre (the value at Claudias death) and $150 for Greenacre (the purchase price paid by the estate).”
Example from McCouch, Grayson M. P. 2020. Federal income taxation of estates, trusts, and beneficiaries.
The purpose of the uniform basis rule is, “… on the one hand, to tax the gain, in respect of such property, to him who realizes it (without regard to the circumstances that at the death of the decedent it may have been quite uncertain whether the taxpayer would take or gain anything); and, on the other hand, not to recognize as gain any element of value resulting solely from the circumstance that the possession or enjoyment of the taxpayer was postponed.” Reg. 1.1014-4(a).
